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K+S shares plunge after PotashCorp ditches $8.9bn bid

News05 Oct 2015by Newsdesk

Shares in Germany's K+S plunged close to their lowest level of 2015 after rival PotashCorp withdrew an $8.9bn bid, citing weakened market conditions and a failure by directors in the target group to "engage" in talks over a deal.

K+S shares tumbled 25% at one point to E23.15 in early deals in Frankfurt, their lowest level since early January, before recovering some ground to close at E23.355, a drop of 21%, and wiping nearly E1.5bn from the group's stockmarket value.

The shares were well below the E29.05 at which they stood before PotashCorp's was revealed in late June, although in a weak period for global stockmarkets, hurt by weakened prospects for economic growth in emerging markets.

Frankfurt's Dax index is down some 15% over the same period.

Monday's slump followed the withdrawal by PotashCorp of a proposal to buy K+S for E41 per share, equivalent to E7.6bn ($8.9bn), blaming a refusal of K+S executives to enter talks on a tie-up, besides the worsened global market conditions.

'Potential storms'

"Challenging macroeconomic conditions have contributed to a significant decline of global commodity and equity markets, with potash peer stocks down almost 40%," said Jochen Tilk, the PotashCorp chief executive.

"In light of these market conditions and a lack of engagement by K+S management, we have concluded that continued pursuit of a combination is no longer in the best interests of our shareholders."

Mr Tilk added in a letter on Sunday to the K+S board that "we withdrew our proposal, frankly, with some disappointment as the strategic rationale for the transaction was compelling in our view.

"We believed that a German-Canadian business combination would be much better positioned to weather potential storms that may be coming your way," including the start of production at Eurochem mines in Russia.

"We have to be prepared for the possibility that the coming years may be more challenging because of the macroeconomic environment and increased competition."

'Price not nearly high enough'

K+S on Monday acknowledged the "current weakness of the potash markets", adding that it was "expecting further tangible growth" in the division, and its salt operations, in the medium-term.

The group also said it was expecting "significant sales and earnings growth his year".

The price that PotashCorp offered "had not nearly reflected the fundamental value of the company and was not in the best interest of the company", K+S added, restating also concerns that a deal would have led to the closure of German capacity.

"The job and site commitments by PotashCorp included such far-reaching restrictions that commodity production would not have been secured in Germany."

PotashCorp shares

PotashCorp shares closed 2.3% higher at $20.98 in New York.

The shares closed on Friday some 35% below their level before the K+S approach was revealed, and touched $19.48 during the session, the lowest in nearly seven years.

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